Correlation Between Gansu Jiu and Guanghui Energy

Can any of the company-specific risk be diversified away by investing in both Gansu Jiu and Guanghui Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gansu Jiu and Guanghui Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gansu Jiu Steel and Guanghui Energy Co, you can compare the effects of market volatilities on Gansu Jiu and Guanghui Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gansu Jiu with a short position of Guanghui Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gansu Jiu and Guanghui Energy.

Diversification Opportunities for Gansu Jiu and Guanghui Energy

-0.02

Correlation Coefficient

Gansu Jiu  Guanghui Energy

Good diversification

The 3 months correlation between Gansu and Guanghui is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Guanghui Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guanghui Energy and Gansu Jiu is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Gansu Jiu Steel are associated (or correlated) with Guanghui Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guanghui Energy has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Guanghui Energy go up and down completely randomly.

Pair Corralation between Gansu Jiu and Guanghui Energy

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Guanghui Energy. In addition to that, Gansu Jiu is 1.95 times more volatile than Guanghui Energy Co. It trades about -0.41 of its total potential returns per unit of risk. Guanghui Energy Co is currently generating about -0.47 per unit of volatility. If you would invest  713.00  in Guanghui Energy Co on October 9, 2024 and sell it today you would lose (75.00) from holding Guanghui Energy Co or give up 10.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Gansu Jiu Steel  vs.  Guanghui Energy Co

Gansu Jiu Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu sustained solid returns over the last few months and may actually be approaching a breakup point.

Guanghui Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guanghui Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Gansu Jiu and Guanghui Energy

The main advantage of trading using opposite Gansu Jiu and Guanghui Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gansu Jiu position performs unexpectedly, Guanghui Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Guanghui Energy will offset losses from the drop in Guanghui Energy's long position.

The idea behind Gansu Jiu Steel and Guanghui Energy Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.